The American automotive industry is in trouble due to continuous revenue losses. And at this point, there is no looking back for Ford. Foreign automakers sales continue to rise and without effective business decisions, the United States may be left in the dust with an invention they created nearly 100 years ago.
Due to past business failures merely four years ago, many are not convinced that Ford’s “Way Forward” plan, the newest attempt at surviving this down spiral of losses, will be as effective as Ford expects it to be. However, immediate explanation for these impactful business decisions and the need for yet another revitalization plan continues to not be explained. Ford’s constant implementation of various business plans has many wondering what happened between then and now that has it calling for helping once again.
Ford Motor Company, one of the nation’s Big Three automotive manufacturers with nearly 325,000 employees, announced the “Way Forward” plan in late January 2006. According to the plan, nearly 30,000 jobs will be cut and 14 plants in North America will close by 2012. The plan’s central focus involves jumpstarting revenue after its U.S. market share continues to fall for the last five years according to published global investment reports from Goldman Sachs, a global investment firm that publishes monthly reports about Ford. With this steady decrease in sales, most Americans wonder when or if the auto industry will bounce back.
Ford’s troubles began at the turn of the new millennium. In early 2002, according to a Feb. 28, 2006 record published by Hoover Company, a company that provides in-depth coverage of top enterprises around the world, Ford outlined a plan to revitalize the company after staggering 2001 losses and a plummeting stock price. The plan called for trimming costs, improving its relationship with suppliers and dealers and introducing new products much like the “Way Forward” plan illustrates today.
Profits occurred until mid 2004 when Ford report that pricing pressures, rising health care, material and fuel price costs came to be dangerous business factors. The company would later release a Security Exchange Commission (SEC) filing that claims they expected these costs to remain constant. The argument seems somewhat believable because of the U.S. Department of Labor’s report stating that fuel prices began to spike in May 2004 at just over $2.00 a gallon. Prices seem to linger at about that mark for the rest of the year and in 2005, the national average was well above that.
However, rising fuel costs can hardly be the only factor in Ford’s constant decline in revenue. Ford continues to decline commenting on this issue. Trouble was discovered in a Dec. 23, 2005 report by Goldman Sachs, in which they noticed significant economic danger. “Ford’s labor-related fixed costs remain too high, compelling it to bring more supply to the market than it can sell profitably given how competitive the market is.” The reasoning, however, does not seem conclusive, which has many thinking there is more involved.
One Ford representative who wanted to remain unnamed believes more cuts will be done before any positive numbers result. “They are going to analyze numbers in April and see what steps will be required next.” The company already plans to close six plants by 2008, including Wixom, MI; Windsor, Ontario; St. Louis; Atlanta; and Batavia, Ohio.
After the release of this customer-oriented business plan, many where unhopeful of its future business effect. Many economic analysts believe that Ford will once again remain unsuccessful with its business expectations. Robert Barry and Patrick Archambault, Goldman Sachs global investment researchers, report in their Feb. 2006 monthly report, that they also believe the “Way Forward” plan will fall short of what is needed to restore profitability to the North American auto business. “Ford would have to sell only those vehicles it can price at a level that covers variable and fixed costs plus allow for some degree of profit. This is the approach we believe many Asian automakers take when deciding which vehicles to add to or keep in their lineup.”
And so the concern with foreign automakers’ sales begins. Currently, Ford produces more than it can sell due to rising foreign automakers’ sales. In January, Toyota reported a near 14 percent increase in its monthly sales. This rise is often speculated to be directly involved with foreign cars’ ability to use fuel more effectively, which due to its rising cost, is an impactful factor in many Americans’ decision in buying a new car.
The Ford representative also believes that foreign cars continue to be popular because they are marketed as new and exotic, exciting products. “Many people also believe they have superior quality over U.S. automakers even though that gap [of thinking] has been shrinking. Also, foreign automakers are seen as providing value, which means different things to different people – for some it’s purely price, for others it’s quality and low maintenance [ideals].”
This continuous rising sales trend for foreign automakers has many local Chicagoans offering suggestions for Ford to return back to the American tradition of auto sales. Jess D’Amico remains assured that the auto industry will rebound. “Coming from the South, there is a lot of pride invested in what’s homemade of distinct American quality,” said D’Amico, who lives in Chicago’s Boys town, who currently does not own a car. “I think foreign cars will continue to be popular, when you give people the choice of either or, they want to keep it.”
“I think auto companies need to design for the future, not what is hip and will sell well now,” said Sarah Morgan. “I’m assured that Ford will rise their car sales if they keep in mind what their buying audience ultimately desires.” Whatever the choice is, America’s economy hopes for an increase in revenue in the near future.
Ultimately, the same Ford Representative believes the company needs to keep customers in mind even in this troubling economic time. “The top priority is to keep improving quality and ensure that it gets known. Second, [we need to] make exciting products and offer “WOW” type features [that] add value for our customers,” they said.